Segro ‘well placed to weather Covid-19 storm’, in rent talks with struggling tenants

UK logistics REIT Segro is in talks with customers experiencing cashflow problems, but says its business is fundamentally sound and ‘well placed to weather the storm caused by the Covid-19 pandemic’.

In a statement issued on Thursday on the impact of Covid-19, Segro said its financial position was robust and liquidity was strong, with ‘significant headroom’ for meeting its financial commitments. Rental income would have to fall by 80% or asset values by 64% before any debt covenants are breached, the company said.  

'It is inevitable that there will be some negative effects on earnings in the short term, and it is currently not possible to quantify this as it is dependent upon evolution of the pandemic, the duration and extent of the measures put in place to combat it, and the nature, extent and effectiveness of government support to the sectors of the economy most affected,’ the firm noted.

Segro has a 7.8 million m2 industrial portfolio valued at £11.7 bn (13.2 bn) at end-2019, with assets in the UK located across London and the South-East and Midlands regions. In Continental Europe it has developments in France, Germany, Italy, Poland, Spain, the Netherlands and the Czech Republic.

The London-listed company said it was working on a ‘case-by-case basis’ with customers experiencing cashflow issues as a result of the coronavirus crisis, to help them reschedule rental payments.

‘We have a very diversified customer base across a variety of sectors, many of whom are involved in the supply of critical goods and services, but we appreciate that current circumstances are placing pressure on the cash flows of some of our customers. Most of these businesses are fundamentally sound and we are working with them to provide appropriate assistance,’ said David Sleath, CEO of Segro.

‘We are currently working, on a case-by-case basis, with customers across the group representing approximately a quarter of our total headline rent regarding appropriate relief, primarily through reprofiling the timing of rental payments.’

Around half of the group’s headline rental income is payable on the UK quarterly payment days, with rents in Continental Europe payable on a different timetable.

For the most recent quarterly payment date, 25 March 2020, 71% of the rent due was paid, while around 25% is subject to what Segro described as ‘reprofiling discussions’. At the same time last year, 96% of the rent had been paid. 

Delay in development projects
Segro said government measures to combat the further spread of coronavirus would delay most development projects scheduled for completion during 2020. Development activity will also be hampered by constraints in securing materials and/or labour for construction sites.

While it was too early to fully assess the impact of the crisis, the company said its management board had decided – based on the strength of the balance sheet and high quality of the portfolio –  that it was ‘appropriate’ to proceed with payment of the final dividend of 14.4 pence per share on 1 May 2020, as previously announced.

The REIT said trading in the early part of 2020, prior to onset of the Covid-19 outbreak, was encouraging, with rent roll growth ahead of expectations due to new lettings and pre-lets.

Segro noted that many of its customers are involved in the supply of business-critical goods and that some are looking for additional space both for immediate occupation and to prepare for longer term growth once the crisis is over.

'Whilst current global events are unprecedented, we anticipate that the structural trends that have been driving occupier demand for high-quality, well located warehouse space will remain intact and may even be strengthened by the crisis, as the importance of logistics supply chains has been thrown into sharp focus in recent weeks,’ Sleath said.